Correlation Between Empire Petroleum and Houston American

Can any of the company-specific risk be diversified away by investing in both Empire Petroleum and Houston American at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Empire Petroleum and Houston American into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Empire Petroleum Corp and Houston American Energy, you can compare the effects of market volatilities on Empire Petroleum and Houston American and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Empire Petroleum with a short position of Houston American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Empire Petroleum and Houston American.

Diversification Opportunities for Empire Petroleum and Houston American

0.16

Correlation Coefficient

Empire Petroleum  Houston American

Average diversification

The 3 months correlation between Empire and Houston is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Empire Petroleum Corp and Houston American Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Houston American Energy and Empire Petroleum is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Empire Petroleum Corp are associated (or correlated) with Houston American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Houston American Energy has no effect on the direction of Empire Petroleum i.e., Empire Petroleum and Houston American go up and down completely randomly.

Pair Corralation between Empire Petroleum and Houston American

Allowing for the 90-day total investment horizon Empire Petroleum is expected to generate 1.4 times less return on investment than Houston American. But when comparing it to its historical volatility, Empire Petroleum Corp is 1.74 times less risky than Houston American. It trades about 0.13 of its potential returns per unit of risk. Houston American Energy is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  104.00  in Houston American Energy on September 16, 2024 and sell it today you would earn a total of  35.00  from holding Houston American Energy or generate 33.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Empire Petroleum Corp  vs.  Houston American Energy

Empire Petroleum Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Empire Petroleum Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Empire Petroleum reported solid returns over the last few months and may actually be approaching a breakup point.

Houston American Energy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Houston American Energy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Houston American sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Empire Petroleum and Houston American

The main advantage of trading using opposite Empire Petroleum and Houston American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Empire Petroleum position performs unexpectedly, Houston American can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Houston American will offset losses from the drop in Houston American's long position.

The idea behind Empire Petroleum Corp and Houston American Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.